Question

You currently manage Cody’s investment portfolio. He provided you with the following information for the beginning and the end of the year:Investment balance (beginning of year): $100,000Investment balance (end of year): $115,000IRA balance (beginning of year): $75,000IRA balance (end of year): $82,000Net worth (beginning of year): $1,000,000Net worth (end of year): $970,000Annual savings to IRA: $5,000Which of the following statements is correct?The return on investments ratio is within the normal range.The return on the IRA ratio is 10%.The return on net worth ratio is 3.5%.The return on investments, return on IRA, and return on net worth ratios are all within the normal range.

Answer 1

Answer:

The correct Statement is the return on investments ratio is within the normal range.

Explanation:

Return on IRA = IRA balance - IRA beginning ÷ IRA beginning

= ($82,000 - $75,000) ÷ $75,000

= 9.33%

So, The return on the IRA ratio is 10% is incorrect

Return on Net Worth =(Net worth (end of the year) - Net worth (beginning of the year)) ÷ Net worth (beginning of the year)

= ($970,000 - $1,000,000) ÷ $1,000,000

= -3 %

Here, the second part is also incorrect as net worth ratio is 3.5%. and it come in negative return .

The return on investment, the return on IRA and the return on net worth ratios are all within the usual range is incorrect as Return on Net Worth is Negative.

Therefore, the correct Statement is the return on investments ratio is within the normal range.

Return on IRA = (Investment balance (end of year) - Investment balance (beginning of year) ÷ Investment balance (beginning of year)

= ($115,000 - $100,000) ÷ $100,000

= 15%